Operators could see up to 30% churn

Operators could see up to 30% churn

New Delhi: Sanjeev Lehri, a 40-year-old eye surgeon running a clinic in the busy Karol Bagh area of the Capital, says he wants to change his mobile service operator, Vodafone Essar Ltd. But he fears losing patients who have dialled him on the same number for nearly a decade.

Early next year, Lehri can ditch the provider without worry. He will be among an estimated 40 million customers in the four major Indian metros who will have the option of changing operators but retaining their numbers under the mobile number portability, or MNP, scheme.

As India prepares to introduce such portability, predictions for customers churning, or shifting from one operator to another, are high.

“Almost 20% of customers could switch from existing phone companies during the first few months of MNP as they seek better quality of service and a more transparent billing system," predicts a senior official at the Telecom Regulatory Authority of India, or Trai, who spoke on condition of anonymity.

Lehri says poor service is the reason he wants to shift.

“I want to change...but I cannot, because most of my patients have this number since 1998," he says.

Calls and text messages to two senior Vodafone executives for comment weren’t returned.

In the latest quality of service survey by Trai, most phone firms fared better than benchmarks set for them by the regulator.

Vodafone was ranked between bigger rivals Bharti Airtel?Ltd?and Reliance Communications Ltd on most scores. For call drop rates in the survey for the quarter ending June, Bharti reported 1.1 drops for every 100 calls versus Vodafone’s 0.9 and Reliance’s 0.52. Eleven of 1,000 Bharti customers made billing complaints, higher than six and five respectively for Vodafone and Reliance.

For Indian operators, the introduction of number portability in other countries, such as Hong Kong, Pakistan and Finland, holds some lessons.

In a November report, Cambridge, Massachusetts-based Pyramid Research said the churn jumped 10% to almost 20% in Finland after introduction of MNP in July 2003. “Hong Kong saw similar increases in churn, and remains characterized by churn rates in the 40%-50% range," the report said. “In these cases, the markets are either predominantly prepaid or have very short contract periods and no portability fees, making it easy to switch."

With prepaid connections accounting for at least 80% of the Indian mobile subscriber base (Lehri is one of the 150 million mobile phone subscribers here who have prepaid connections), churn rates could also end up being high.

Analysts said number portability could affect the phone firms more in the corporate segment, where average revenue per user tops Rs1,000 a month.

“This segment could see churn rate go up to 30%, because these are bulk connections," said Romal Shetty, director of the telecom practice at KPMG International. “The segment accounts for around 20% of revenues for mobile operators, so it would hurt."

India is the world’s fastest growing wireless market, adding almost eight million subscribers every month. Experts say with new companies expected to be given licences for offering phone services in the country, the incumbents could be under pressure to retain their existing subscribers.

With number portability, “the focus is expected to shift from customer acquisition to retention," said Arvind Subramanian, a partner at Mumbai for consultant Boston Consulting Group.

Telecom consumer activists claim that many dissatisfied customers are waiting for MNP to be rolled out.

“We believe that 25-30% of mobile subscribers are likely to shift to an operator offering better service if given a choice," said S.K. Virmani, project manager at National Consumer Helpline, an initiative sponsored by the ministry of consumer affairs. “If the process for number porting is made consumer friendly, and the charges for a customer are minimal, this rate could even go higher."

Of the total 25,076 complaints across the sectors received by his organization since April, at least 6,000 are from telecom customers. Most of such complaints are about threatening calls from bill recovery agents and lack of transparency in providing billing details to the prepaid subscribers.

Apart from customer service, other issues also will affect churn.

“There could be subscribers of regional operators such as Spice who may want to switch to an operator with a national footprint," says Shetty of KPMG.

Bangalore-based Goutam Chakraborty, the sales head at a real estate consulting firm, carries a Spice Communications Ltd connection. He said he would be keen to migrate to an operator with a national footprint if given a chance. “Not only will it ensure better connectivity, I can also save on the roaming costs."

B.K. Modi, chairman of Spice Communications, said concerns of customers such as Chakraborty should get addressed as his company becomes a national operator.

A representative of GSM cellular operators said they wanted the government to roll out the MNP service to all states and not just the metros. “There could be a short-term impact on the churn rates, but not too much. Currently, the rates are 6-7% for GSM operators. We expect many (CDMA subscribers) to join the GSM segment," said T.V. Ramachandran, director general of the Cellular Operators’ Association of India, a lobby for Indian GSM firms. CDMA is short for code division multiple access, a US-developed wireless standard.

Still, Indian phone firms could learn from the experience of operators in the UK, Australia and Japan. “The existing competitive price plans, which had already incorporated large discounts on annual subscription and on the family plans, managed to increase loyalty among subscribers in Japan," wrote Izumi Takeuchi, senior research analyst at Frost and Sullivan, Japan in a June report.

Aggressive pricing helped. “Softbank (Mobile Corp.) released a new (inexpensive) price plan that required purchase of compatible handset on 24-month instalment basis, which lowered the churn rate," Takeuchi wrote. Apart from pricing, improved quality of service levels also mitigated the impact of number portability on mobile firms such as Chunghwa Telecom Co. Ltd in Taiwan, where churn rates were less than 1% in the initial few months of MNP after it was introduced in October 2005.

Meanwhile, in India, the government along with regulator Trai is working on a plan to ensure that number portability “offers choice to Indian mobile users, without any complex and tedious paperwork," said the same Trai official. The regulator, along with senior officials from India’s department of telecommunications or DoT, Telecom Engineering Centre, and telecom operators, is working on recommendations for how MNP will work

Some of the issues being deliberated by MNP committee include time taken for moving a number, charges to be levied on subscribers for porting, setting up of an independent porting exchange where all ported numbers’ records could be hosted, and the technology to be used for number portability. “There are several options on the technology side, but we think a central database, which could also update local databases at operators’ sites, may offer a good solution," said the Trai official.